School of Management Blekinge Institute of Technology
Telecommunications Managed Services Model in sub-Saharan Africa – The Pros and Cons:
The Case of Nigeria
By Chidi Esonwune 740830-P112
Supervisor:
Urban Ljungquist, PhD
Associate Professor, School of Management.
Blekinge Tekniska Högskola SE-371 79 Karlskrona, Sweden
Thesis for the Master’s degree in Business Administration Autumn 2010
Page | ii ABSTRACT
School of Management
Master of Business Administration
Telecommunications Managed Services Model in sub-Saharan Africa – The Pros and Cons – The Case of Nigeria:
20/12/ 2010 50 pages
The Telecommunications sector in developing country like Nigeria and other sub- Saharan African countries are increasingly embracing the Managed Services Model, a kind of outsourcing, primarily due the need to cut operational cost, for rapid expansion, to gain market share and to focus on core competence. However, despite the benefits associated with this model and its successful adoption the world over by many telecommunications companies, many sub-Saharan African countries are showing a deviation from this trend. The purpose of this thesis is to explore the motivations in favor or against the adoption of Managed Services Model in sub-Saharan Africa with emphasis on Nigeria. Interview was used as the main tool to gather the required information from some telecom operators and vendors in Nigeria and complemented by the use of a questionnaire survey. The outcome of the analysis of the data gathered indicate that the reason behind the adoption of managed services is cost reduction, access to skilled manpower, better focus on core business, quality improvements, and competitive advantage. The study also establishes that increasing unemployment rate, diminished local competence and expertise, and security concern are among the top reasons for the call against the adoption of Managed Services Model.
Keywords: Managed Services, Outsourcing, Service Provider, Vendors, Telecom,
Page | iii ACKNOWLEDGEMENTS
First and foremost, I sincerely thank God for his favor throughout the duration my MBA program and for giving me the strength to complete it.
Since no degree of knowledge attained my man can keep him from the want of hourly assistance, I wish place on record, my sincere gratitude to the following:
Mr. Urban Ljungquist, my supervisor, for his guidance during the course of this thesis work,
Mr. Klaus Sob, whose patient and directives I enjoyed throughout the course of this program.
My wife, Mrs. Ifeoma Esonwune, for her constructive criticism and all she had to put up with during the course of this program.
Mr. Esonwune Henry, my brother, whose contribution during the course of this work is invaluable to the completion of the thesis work.
Page | iv TABLE OF CONTENTS
Abstract………...ii
Acknowledgement………..iii
Table of Content………...iv
List of Figures and Tables………....v
Chapter One ………..1
1.0 Introduction ………..………1
1.1 Introduction and Overview………1
1.2 Background Information………2
1.3 Theoretical Problem………...3
1.4 Purpose and Motivation of the Research..……….4
1.5 Summary of Findings ………6
1.6 Scope of the Study ………6
Chapter Two ……….….7
2. Literature Review ………...…….7
2.0 Introduction……...……….7
2.1 Outsourcing Theoretical Approaches...7
2.1.1 The Core Competence Theory...7
2.1.2 The Resource-based Theory...8
2.1.3 The Transaction Cost Theory...8
2.1.4 The Contractual Theory...9
2.1.5 Network theory...9
2.1.6 Contingency Theory...9
2.2 Outsourcing Decision Considerations...10
2.2.1 Strategy-based Outsourcing Decision...10
2.2.2 Selecting Outsourcing Provider...11
2.3 Sourcing Maturity Considerations………..12
2.4 Outsourcing Options...14
2.4.1 Staff Augmentation Model...14
Page | v
2.4.2 Out-Tasking...14
2.4.3 Project based Outsourcing Model...15
2.4.4 Managed Services Model...15
2.4.5 Comparison of Outsourcing Options...15
2.5 The Managed Services Model...16
2.6 Choosing a Managed Services Provider...17
2.7 Outsourcing Network Management...18
2.7.1 Factors to Consider before Outsourcing Network Management...18
2.7.2 Benefits of Network Outsourcing to Manage Services...19
2.7.3 Drawbacks of Network Outsourcing to Manage Services...19
2.8 Service Level Agreement (SLA)...20
2.8.1 The Composition of an SLA...20
2.8.2 SLA'S Limitation Considerations...21
Chapter Three...22
3.0 Research Methodology...22
3.1 Overview...22
3.2 Quantitative and Qualitative Data Collection Method………...…22
3.2.1 Quantitative Data Collection Method...22
3.2.2 Qualitative Data Collection Method...23
3.3 Research Ethics...24
3.4 The Data Collection Approaches...25
3.4.1 The Interview...25
3.4.2 The Questionnaire...27
3.5 Data Analysis……….………..28
3.5.1 Interview Data Analysis...28
3.5.2 Questionnaire Data Analysis...28
3.6 Research Limitations...28
Chapter Four...30
4. Empirical Findings...30
4.0 Introduction...30
4.1 Managed Services in Nigeria...30
Page | vi
4.2 The Survey Data...32
4.2.1 The Interviews Data...32
4.2.2 The Questionnaire Data...32
Chapter Five...34
5.0 Analysis of Findings...34
5.1 Introduction...34
5.2 Profiles of the Industry and Survey Respondents...34
5.3 Main Findings from the Interviews...34
5.4 Main Findings from the Questionnaires...37
5.4.1 Reasons against Outsourcing under Managed Services...38
5.4.2 Reasons in Favour of Outsourcing under Managed Services...39
Chapter Six...41
6.0 Conclusion and Recommendations...41
6.1 Conclusion ...41
6.2 Recommendation...42
References...43
Bibliography...48
Appendix...49
Apendix A Interview/Questionnaire Covering Letter………49
Appendix B Questions 3 to 19 of the Questionnaire Survey…….………50
LIST OF FIGURES & TABLES Figure 1.1 Sourcing Decision Process..……….10
Figure 2.1 Sourcing Model Framework……….12
Table 2.1 Different Sourcing Maturity Levels………...13
Table 2.2 Overview of the Pros and Cons of the Different Outsourcing Options...……16
Table 4.1 Interview Results…………..……….32
Table 4.2 Questionnaire Survey………33
Page | vii
Figure 5.1 Frequency distribution of responses from interview……….36
Table 5.1 Responses on Recommending Managed Services………37
Table 5.2 Responses Summary on Recommending Managed Services………37
Table 5.3 Job Title/ Functions and Survey Respondents………38
Table 5.4 Survey Responses per Statement……….38
Table 5.5 Survey Responses per Statement in Percentages……….38
Figure 5.2 The frequecy distribution per Statement in Percentage………39
Table 5.6 Total number of Responses in number and percentages………..40
Table 5.7 Questionnaire Responses on Recommending Managed Services……….40
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Page | 1 CHAPTER ONE
1.0 INTRODUCTION
1.1 INTRODUCTION AND OVERVIEW
Many Telecom operators in sub-Saharan African countries are currently witnessing job outsourcing initiatives to certain Managed Services providers, where work, responsibilities, decision rights are transferred to an external expert entity that may be located within or outside the country. This initiative in recent times is generating much concern to operators and stakeholders. While the management of telecom operators themselves sees this from the commercial perspective, others, especially the local staff and concerned individuals, are considering it as an initiative that will render them jobless and threaten their opportunity to become experts in the telecom field.
The concept of outsourcing extends from purchasing through make-or-buy decision to takeover of a business function from one organization to another. It concerned with the transfer of activities (work, responsibility, decision rights) that have been performed internally to an external provider (Domberger, 1998) and covers wide range of an organizations functions. For this study, outsourcing is defined as an outcome of a given function that was formerly part of an organization and that now is part of another organization function and whose relationship is bounded by a contract.
With the increasing relevance of telecommunications in every sphere of human endeavor, deciding a telecom solution for the business now has not only technical significances but also economical. Fluctuating economic and market conditions are forcing these organizations to evaluate how knowledge, assets, and resources are utilized to produce strategic opportunities in response to the threat posed by the competition, this has made outsourcing a crucial discourse in the establishment of strategic process in many organizations. Following the increase in outsourcing and managed services, as a result of the glaring global competition, the scope of outsourcing changes from the traditional concept to strategy (Quinn & Hilmer, 1994). Strategic outsourcing is concerned with creating value to align with the business processes that are changed to be in line with strategic goals (Mazzawi, 2002). Consequently, management are employing the abilities of a team of combined local and foreign expertise in addition to the use of new technologies to improved service delivery to customers with the belief that outsourcing, particularly to Managed Services, can result in cost saving and provide the much needed competitive edge. Furthermore, organizations are focusing on creating values by demanding particular competencies of individuals, and outsource every business functions that will enable them gain the competitive advantage with the exception of P a g e | 1some specialized functions (Quinn & Hilmer, 1994). The main propelling
Page | 2 element for this decision is basically centered on organizational restructuring and costs reduction.
Accordingly, most experts foresee that increasing numbers of organizations will outsource increasing numbers of services and functions in the coming years. Although the results of most early outsourcing drives were unsatisfying, recent investigation shows that organizations are bettering their potentials with respect to managing outsourcing relationships (Lacity et al., 1998). Despite the difficulties constantly being reported by organizations with regards to their outsourcing arrangements, outsourcing has developed as a crucial tool in business management, with its own set of peculiar management practices and challenges (Ross et al., 2003).
This research plans to explore the pros and cons that exist in the adoption of Managed Services Model, a kind of Outsourcing practice, by the mobile telecommunication operators in sub-Saharan Africa. The study will assess current managed services implementations in this region, assess the arguments in favor and against it and draws conclusions regarding the best practice in this part of the world. In this study, Nigeria will be used as the case study.
1.2 BACKGROUND INFORMATION
The Nigeria Telecommunications industry, since the licensing of Global System for Mobile Communications (GSM) in August 2001, has evolved tremendously in the past nine years with a mobile subscriber base of over 69 million (April 2010, NCC Report).
Today, we have five GSM companies; MTN, Zain, Glo Mobile, Etisalat and MTEL are jostling for market share and subscriber base in the country. The telecom industry has contributed in the country’s GDP growth to 6.9% in 2009 from 6.0% in 2008 (Mar 2010, Nigerian Bureau of Statistics) and has also brought about increased employment opportunities to the growing professional in communication and information technology.
Mobile telecom service providers in Nigeria are constantly in competition for market share as a result managers in these companies are employing different strategies to keep them ahead of their competitors. Their emphasis is centered on cost reduction and the same time focused on increasing profit margin. In the quest to be on top of the competition, Mobile telecom operators in Nigeria are employing different strategies which include investments on newer technologies, staff reduction and the adoption of managed services. Of these strategies, managed services has recently assumed the best sought after strategy by Mobile telecom operators, while some have already implemented it some have partially implemented it and yet others are now considering it based on the
Page | 3 fact that it would lead to cost reduction, improve service delivery and make the company more competitive.
Three out of four GSM operators in Nigeria namely Etisalat, Glo Mobile and Zain/Bharti presently have their technical departments outsourced under a managed services contract agreement, to Managed Services Providers like Huawei, Alcatel, Nokia Semens, and Ericsson respectively. In Early 2009, Zain Nigeria in the bid to remain competitive, after series management takeovers, the need to reduce operating costs and the need for expert support, outsourced their Network Operation unit to Ericsson managed services to the existing Nokia Semens. The unit remained outsourced even when the company was bought by an Indian company, Bharti. The inherent issues form this outsourcing is being ironed out. Glo Mobile started operations with Alcatel and recently Huawei as their managed services provider. Also Etisalat started operations with Huawei as their managed services provider. In 2008, MTN Nigeria announced its intention to outsource its Information Systems unit (IS) to IBM for managed services, phase implementation actually started in 2009 but later abandoned. MTN before now had managed services agreement with Huawei for Site maintenance in the Northern part of the country.
1.3 THEORITICAL PROBLEM
The main question of this thesis is to investigate the Pros and Cons of adopting the Managed Services Model (MSM) in sub-Saharan Africa. In an attempt to answer this question and gather essential information required for the study, other specific questions came up, questions like:
What determine the need to outsource?
What constitute the Managed Service Model?
What are the benefits and drawbacks of Managed Services?
To what extent is this strategy implementation affect local work force?
Many theoretical approaches to outsourcing development exist with many contributors expressing their views on these theories. Primarily, the theories that have greatly influenced many outsourcing decisions in major organizations include: Transaction cost, Core competence, Network, Contractual, and Contingency theory – more light will be thrown on these theories in the next chapter. All these theories are the theoretical lens that explains how strategic outsourcing typically affects organizational performance.
Page | 4 The foundation of outsourcing is Williamson theory of transaction cost analysis in 1975.
Transaction cost analysis aggregates economic theory with management theory to define the appropriate relationship an organization should create in the market place. Several other indicators for outsourcing includes reduced capital expenditures (asset investments and labor costs), access to latest technology/infrastructure, transfer of fixed to variable costs, core competence, quality improvement, increased speed, and access to skills and talent et cetera. Nevertheless, the importance of service performance and cost efficiency consistently rank high in outsourcing surveys (Wilding and Juriado, 2004), making these two drivers very important in the study of outsourcing relationship.
Evidence from some logistics outsourcing relationships such as Laura Ashley and Fed Ex (Song et al., 2000), revealed that outsourcing does not always reduce costs. Furthermore, Domberger and Fernandez (1999) reported on an Australian survey showing an average cost increase of nine percent in IT-related outsourcing projects. In this context, it is worth noting that outsourcing may in fact have a negative effect on labor productivity, as pointed out in a study of German manufacturing industries Broedner et al. (2009). Hence, simple cost-efficiency comparisons alone are insufficient criteria for outsourcing decisions thus, it is important to look at the performance effects of different types of outsourcing arrangements like simple part supply versus outsourcing of whole processes.
Contingency theory gives a holistic understanding of how strategic outsourcing capability relates to operational effectiveness and performance. The ability of an organization to maintain performance depends on it cooperation with some other organizations. This can be done by creating a mesh of partnerships for valuable synergy, especially in core competencies, competitive advantage, and from inter-firm relationship between contingent environmental factors.
Basically, the main objective of this dissertation is to conduct a study the will investigate Pros and Cons of adopting the Managed Services Model (MSM) in sub-Saharan Africa.
This paper will look into outsourcing to Managed Services as a crucial phenomenon in the telecommunications sector in sub-Saharan Africa. The study will also focus on the peculiarity of this region and see how the people and telecom operators view the adoption of this strategy. Answers to these questions are fundamental as they will help in addressing all the issues surrounding the adoption of the managed service model in this part of the world.
1.4 PURPOSE AND MOTIVATION OF THE RESEARCH
Telecommunications companies in sub-Saharan Africa are responsible for their entire operation and maintenance requirements as well as network infrastructures like transmission and switching infrastructures needed to effectively run their businesses. In
Page | 5 an attempt to reduce cost, provide better technical support and remain competitive, operators are resorting to outsourcing and mostly their operation and maintenance units that manage the network. Despite this strategy, the companies are now realizing that they are not getting the expected cost reduction, competitive advantage and network stability that the outsourcing intended to offers. The essence of this study relates to what extent Managed Service adoption has on telecommunication companies and the impact of the adoption on stakeholders.
Before the practice of outsourcing, many Telecommunications companies in Nigeria, for instance, are responsible for the end-to-end management of their core and non-core business functions. While some operators are struggling to keep up with this arrangement, others are finding it increasingly difficult to grapple with. These difficulties have led to many companies relying more and more on Managed Services and transferring some of their business functions to third-party vendors whom they believe can handle these functions. Some companies seek to outsource for tactical or strategic reasons allowing them focus on their core competencies.
Telecommunications businesses today are faced with increased competition as a result of new technologies, reduced budget and customer needs. Network operators are turning to managed services and outsourcing not only to reduce their operating costs but also to transform business models to compete more effectively, a trend that will continue growing (Calvin A. May 2010)
Experienced outsourcers tend to give greater accountability to the service providers leveraging the provider’s end-to-end capabilities. This is the Managed Services model (Manish et al., 2007). In a managed services model, the managed service provider is in charge of all the services to be provided, ranges from design, implementation and maintenance. The managed service provider usually draws up Service Level Agreements (SLAs) with client and enters Operational Level Agreement (OLA) with other service provider in a multi-vendor environment.
Managed Services model, also known as Fully Outsourced Model, has widely been considered as the best model to adopt for technology outsourcing in multi-year agreement. In this model, managed service provider (MSP) has complete decision making responsibilities in providing the agreed set of deliverables.
While acknowledging the immense benefits that Managed services and other outsourcing models present, it is worth noting that there are inherent risks and drawbacks associated with their adoption. In Nigeria and in did sub-Saharan Africa, cultural mismatch, community agitations, social obligations, diminishing local competence development and internet connectivity issues affecting deliverable and remote support are few of the risks.
Page | 6 The significance of this study is in its relevance to managers in organizations seeking to go the way of outsourcing as it will guide them in their outsourcing decision making process. It presents the essential details they need to know about this strategy and the benefits and challenges associated with it
1.5 SUMMARY OF FINDINGS
The outcome of this study revealed that staff at all levels believes there is significant cost reduction with the adoption of Managed Services Model. However, Top management are more inclined at adopting the Managed Services Model and in addition to cost savings, they consider competitive advantage, quality improvement, and new technology as their driving factors, though with some reservation on security issues. While staffs at lower management positions are opposed to the strategy of Managed Services Model citing increased unemployment and diminished competency development as their major concern.
1.6 SCOPE OF THIS STUDY
The Chapter two of this paper contains the review of relevant literatures that extensively dealt with the subject of this study. The review covers the various outsourcing theories and outsourcing decision considerations. It also looked at the criteria on outsourcing, provider selection and the outsourcing option available. It goes further to find out why managed services is the model of choice and what to consider when choosing a managed services provider. The review also looked at the current managed services and how it is faring in Nigeria and concluded by looking at the costs, benefits and risks associated with the managed services model. Chapter three focused on the research methodology, it explains how the research was conducted, the actual ways data was sourced. In chapter four, analysis of the findings based on the research methods – interviews questionnaire survey, will be was carried out. Finally, chapter five concludes the thesis with conclusion and proffers some recommendations.
Page | 7 CHAPTER TWO
2. LITERATURE REVIEW 2.0 INTRODUCTION
In sub-Saharan Africa, especially Nigeria, the rising cost of doing business is becoming a source of concern to telecom operators and stakeholders alike, with increase in expenditure and constant reduction in profit margin. This has no doubt affected telecom service delivery despite the tremendous growth in the telecommunications industry in the region. Also, with globalization and increasing competition, telecom tariffs are falling leaving operators to grapple with consistent decline in Average Revenue per User (ARPU). The Guardian Newspaper (October 2010) reported that, globally, 65-70 percent of an operator’s Operating Expenditures (OPEX) goes towards telecom infrastructure provisioning cost. With this situation, operators are now seeking innovative and cost effective ways of doing business, and which have brought the desire for an outsourcing model that can help reverse the trend. The same logic that influences a company’s make or buy decision also influence the desire to outsource. (Ivanka et al., 2008, p.10)
In this chapter I reviewed literatures that specifically dealt with Outsourcing and Managed Services. The review covers the latest research works and research works that have relevant inputs regarding of the specific context of this study.
2.1 Outsourcing Theoretical Foundation
There are several theories that apply to the phenomenon of outsourcing; some of the critical theories have been identified as Core Competence theory, Resource-based theory, Transaction cost theory, Network theory, Contractual Theory, and Contingency theory.
2.1.1 The core competencies:
According to Prahalad and Hamel (1990), proposed that Organization needs to be fully aware of potentials and core competencies in order to successfully tap their resources.
They looked at it in terms organise different production skills and technologies and should not easy to imitate. In the telecoms sector, there will are uncertainty on what constitute core competence. Quinn (1999) contends that core competencies are not products or things we know how to do well, but those thing the company is very good at, especially in things require mental reasoning.
Page | 8 2.1.2 The Resource-based theory:
This theory considers that company resources, whether physical or not, is actual source of competitive advantage. The company’s ability to leverage on these resources will differentiate them from their competitors. Physical resources include infrastructure, location and competencies, while non-physical resources include human, knowledge base, culture, teamwork. The core of the resource-based theory hinges on the internal resources the companies can boost of rather that those dependent on external factors.
However, if the internal resources are insufficient, outsourcing will be the next option.
Accordingly, the traditional resource-based view extended to include intangible assets like as knowledge assets (tacit knowledge of the employees), processes and technology.
Also, the resource-based view (RBV) provides a theoretical foundation to justify that effectiveness of outsourcing and firm performance is a product of the capability and resource (Barney, 1991). In this thesis, strategic outsourcing capability should be regarded as firms’ capability that affects firm performance. When a firm co-operate with its partners, in an outsource setting, and work with them, its knowledge is enriched.
Consequently, the partners’ knowledge is the capability (Barney, 1991) which is the process embedded in the firm and other related reciprocal activities that enhance the firms’ potential and creates sustained competitive advantage (Eisenhardt and Martin, 2000). Accordingly, the firm with greater strategic outsourcing capability is inclined to attain its success by using partners' capabilities and effectiveness of operation and enhances firm's performance. (Khwanruedee et al., 2010)
2.1.3 Transaction Cost Theory:
Henisz and Williamson (1999) maintained that transaction cost economics is a relative legal advancement to economic organization where information of transaction and governance activities is focused. Transaction cost refers to all costs, internal and external, associated with the production of goods and services via the market instead of producing it by the company. Transaction cost includes monitoring, evaluation costs, search and information costs, bargaining, decision, control, and governance costs. Logan (2000) contends that the theory aids companies to identify which of their substantive, non-core roles they should source externally and which they should produce locally. This makes or buys decision certainly help in Sourcing decisions. Decision to outsource should never be taken when governance costs are with respect to the benefits but should proceed when this is on the contrary.
Furthermore, this theory also gives a superb framework for analyzing the outsourcing option, since the fundamental choice here is between using an outsourcing service vendor (a market mechanism) and providing in-house services (an organizational hierarchy)
Page | 9 (Cheon et al., 1995). Transaction cost indicators can lead to increase transaction costs as a result of human behavior and transaction characteristics.
2.1.4 Contractual Theory:
According Solli-Saether and Petter (2009), outsourcing contract provides a legal framework that binds the right, roles and responsibilities of the parties in the contract and the inherent goals, policies and strategies. This theory provides the atmosphere where each party in an outsourcing arrangement can discharge their duties efficiently in a collaborative manner and within the bounds of their relationship as the contract detects.
Contractual theory is invaluable to contract management. Usually, a specific Service Level Agreements (SLAs) is established between operator and vendor, with measures on how the outsourcing progress is made against benchmarks.
2.1.5 Network Theory
A network is generally defined as a specific type of relation linking a defined set of persons, objects, or events (Helena L. 2005). Different networks are recognized by their different relations, regardless if it is enforced on an identical set of elements. A network is defined by a collection of persons, groups, organizations, objects or events normally called actors whose relationship are linked. A network analysis considers the relations that take place among the actors and those that do not.
The Network theory explains how firms' cooperation can be affected by viewing each event in network of relationships among communities or industry (Gulati et al., 2000), among organizations or firms (Wilkinson and Young, 2002). The network theory depicts the harmony exiting between strategic outsourcing capability and outsourcing success. As some business functions are outsourced, the relationship that exists between organizations in the network as they interact, results in various resources and capability gain and interlinks their core activities as they interact. Furthermore, capability of creating, managing and concluding important relationships is a core resource for a firm (Moller and Halinen, 1999). Therefore, firms with relationships take higher proceeds because of the access to good information and opportunities than those firms that are more circumferential. Accordingly, firm's ability to connect to others within a network through interaction (i.e. outsourcing) leads to firm's success of operation (Khwanruedee et al., 2010)
2.1.6 Contingency Theory
The contingency theory states that there is no single way to manage organizations or no answers that can be universally applied to common organizational problems (Ginsberg and Venkatraman, 1985). According to Khwanruedee (2010), the contingency theory is
Page | 10 concerned with moderator variables that have a significant moderating effect on the appropriateness of outsourcing strategy and the success. On this basis, strategic outsourcing capability and outsourcing success depend upon two elements; teamwork attitude and inter-organizational trust. teamwork attitude is inclined to raise the relationships between organizational constituents and outsourcing capability, since a lot of strategic outsourcing capability rests on appropriate restraining components, and a lot of contingency quantities may have a possible impact on the outsourcing strategy (Mol et al., 2005), also, when unexpected contingencies come up, intensity of inter-organizational trust tends to increase the outsourcing capability (Krishnan et al., 2006).
2.2 OUTSOURCING DECISION CONSIDERATIONS
Starting up any outsourcing decision making process demands much effort, hence Douglas and Scott (2005) declared that some fundamental considerations should be adhered to. They proposed that the organization should set their strategic direction, highlight their core competence and determine its strategic objectives, produce a list of suppliers/vendors to consider and constitute a team for the outsourcing and governance process. It is worth emphasising that the organization should consider the choice of partner – they should focus on partnering with the right vendors, institute an efficient governance system that foster’s good relationship, and also handle employees’ dealings with caution. Above all, the senior management must set the overall direction.
2.2.1Strategy-Based Outsourcing Decision Model
Outsourcing decisions, according to Justin et al (2006), should be a really strategy-driven process, which could be accomplished as specified on the figure below:
Figure 1.1 Outsourcing Decision Process Justin et al., (2006),
(i) Define Strategic Objectives: A clear definition of the strategic objectives and target variables, that can be used evaluate the success of the strategic decision, is most vital for the success of an outsourcing move. This step is very crucial.
(ii) Define a suitable Outsourcing Model: The clear definition of objectives and variables will help figure out the business gains and set goals.
Define Strategic Objectives(s)
Define a suitable Outsourcing
M d l
Validate the Outsourcing
Model
Define Requirements and
Partner Selection Criteria
Select Vendor
Page | 11 (iii) Validate the Outsourcing Model: This step may include some stakeholders, which are involved in the outsourcing projects within the organization. This step also strengthens the benefits and risks of the outsourcing decision and may consider benchmarking data for similar businesses.
(iv) Define Requirements and Partner Selection Criteria: This step involves a clear definition of the requirements and specifications of parameters for the vendor selection criteria.
(v) Select Vendor: The step involves selecting the right vendor based on Step (iv), then followed by the initiation of negotiations procedure.
Quinn and Hilmer (1994) maintained that the idea of outsourcing hinge on the strategic end of the make-or-buy decision. They stressed that outsourcing decision should be grounded upon the strategic objectives and goals of an organization and the fundamental view of the aim of that organization. Author like Barney J. (1991) backed the ‘resource- based view’ where a company’s competitiveness advantage rests on their resource portfolio. Others, views outsourcing decision from the strategic perspective and which rest on a clear focus on core competences (Prahalad et al.,1990).
Thus, to successfully outsource business functions, top management needs to clearly state the basic indicators for such an action and which will enable them evaluate the strategic objectives related with the outsourcing activity. They need to lay down strong business case and work on it.
2.2.2 SELECTING OUTSOURCING PROVIDERS/VENDOR
There are several factors to be considered before engaging on outsourcing arrangement;
these factors are worth considering since it will enable the intending company to make informed decision that will help in picking the right provider. The following is a useful checklist as stated by Ivanka and Gerard (2008), the provider must:
• Demonstrated competencies: in terms of staff, use of technologies, innovation, industry experience and certifications (ISO/IEC 20000)
• Track record: in terms of service quality attained, financial value created and demonstrated commitment to continual improvement.
• Relationship dynamics: in terms of vision and strategy, the cultural fir, relative size of contract in their portfolio and quality of relationship management.
Page | 12
• Quality of solutions: relevance of services to your requirements, risk management and performance benchmarks.
• Overall capabilities: in terms of financial strength, resources, management systems, and scope and range of services.
Also, ISO27001 Security Information policy on Outsourcing, highlights some security consideration on outsourcing and clearly define and document, the criteria for selecting outsourcer, it takes into account the:
Company’s reputation and history;
Quality of services provided to other customers;
Number and competence of staff and managers;
Financial stability of the company and commercial record;
Retention rates of the company’s employees;
Quality assurance and security management standards currently followed by the company (e.g. certified compliance with ISO 9000 and ISO/IEC 27001).
2.3 SOURCING MATURITY CONSIDERATIONS
Figure 2.1 Sourcing Model Framework (Manish et al., 2007)
Before an organization decide on embarking on outsourcing, it must first look at its level of sourcing readiness, that is, Sourcing Maturity, by reviewing sourcing maturity considerations like sourcing goals, return prospects, impact and awareness. The level of each of these sourcing considerations, whether high, medium or low, determines what kind of sourcing maturity level a company fall within and by extension, what kind
Medium Willingness to
Improve Sourcing Maturity
Out Tasking Staff
Project Based
Managed Services
Low High
High
Page | 13 sourcing model it can adopt. The table below describes these sourcing maturity considerations:
The Figure 2.1 below represents a model that depicts the Sourcing Model that would be adopted by companies based on their sourcing maturity level.
Sourcing Considerations
SOURCING MATURITY
Low Medium High
Goals Short to Medium term tactical focus
Long-term thinking in some selected areas
Comprehensive, enterprise-wide focus on long term goals
Return Prospects
Immediate – short-term gain
Willing to accept a model that requires initial investment with returns over a longer horizon
Balanced portfolio approach, with mix of short-term initiatives yielding immediate returns and long-term initiatives requiring initial investment Impact Localized to
individual groups or projects
Starting to realize some benefits
Impact at the business unit level
Pockets of excellence beginning to emerge
Organization-wide impact
Global sourcing incorporated into company’s business model, leading to enterprise-wide transformation Awareness Low levels of
awareness, mostly in “silos”
that are “testing the waters” on offshoring
Growing awareness across divisional boundaries
Knowledge being managed, organization is learning valuable lessons from previous experiences
Significance of Global Delivery Model well understood across the organization
Organization develops sourcing expertise, and is able to adapt
sourcing strategy to various situations
Table 2.1 Different Sourcing Maturity Levels (Manish et al., 2007)
From the above table, it could be seen that a company with low sourcing maturity does not have the capacity to implement advanced sourcing models like project-based outsourcing model or managed services model, rather the company will be limited to low level models like staff Augmentation which requires limited tactical outsourcing capabilities. This limited option means that the company will not be able to derive the gains from outsourcing. High or matured sourcing companies have comprehensive and
Page | 14 enterprise wide view to outsourcing and therefore can make strategic decision regarding outsourcing.
For company with low sourcing maturity to progress to a high sourcing maturity point, it must formulate a strategy that will increase its outsourcing options and better the benefits it can get from outsourcing. Management in low sourcing maturity companies should do a critical assessment of their current sourcing maturity and have the desire to grow to the next level of sourcing a maturity.
2.4 OUTSOURCING OPTIONS
Different kinds of outsourcing options exists from which any Telecoms company that desires to seed out part/whole of it operations or processes, due to some of the reasons mentioned above, can adopt. The different kinds of outsourcing model include:
a. Staff Augmentation b. Out-Tasking
c. Project Based Outsourcing d. Managed Services
2.4.1 Staff Augmentation Model
In this model, the outsourcing service providers, usually called the vendors, agrees to provide the specific skilled resources to supplement the local work force. Here the activities performed by vendors are as instructed by the client, and they do not take on any risks or accountability. This model can provides cost saving due to the low cost resources and is usually acquired by companies just beginning to outsource.
2.4.2 Out-Tasking
In this model, the vendors are responsible for specific functions in the company. The client controls, manages and oversees in-house while the vendor or service provider performs specific activities as identified by the client. The vendors do not have ownership of any project as they only perform certain tasks from the project and are responsible for their activities.
Page | 15 2.4.3 Project Based Outsourcing Model
Here vendors assume responsibility for a project and are responsible for the day-to-day running of a particular project as given by the client. The client duty then is restricted to monitoring and control. In this model SLAs between the service provider and the Client is drawn up against some benchmarks. SLA like, Project deliverables but not business deliverables are drawn up that details the scope, responsibility deliverable of the vendor.
2.4.4 Managed Services Model
According to Manish and Rohini (2007), in a managed service model, the service provider takes complete ownership for the delivery of services. Their responsibilities including design, building, operating, improving processes, applications, and infrastructure. Generally, the service provider enter a business level SLAs for the outsourced work and usually, providers are involved in drawing up SLAs with the client, or Operational Level Agreement within other service providers in a multi-vendor environment.
The choice of any outsourcing model is influenced by desired outcome and the organization’s current levels of sourcing maturity. Different companies have their expectations from sourcing and based on their needs the company should select the right model suitable for them. As already stated, the main reasons for adopting any outsourcing option is due largely to the need to reduce cost arising from increasing CAPEX and OPEX budgets (caused by competition and globalization), access to skilled manpower, and the opportunity for the company to focus on their core competence.
2.4.5 COMPARISON OF OUTSOURCING OPTIONS
As stated in section 2.3, the choice of the sourcing model broadly depends on the level of sourcing maturity of the company. Different company operates at different level of sourcing maturity and based on their specific needs and expectations they can select the sourcing model that is suitable to them. The table below sum-up the various outsourcing options pros and cons:
Page | 16 Table 2.2 Overview of the Pros and Cons for Different Outsourcing Options
(Manish et al 2007)
The table above shows the various drawbacks and benefits of the various Outsourcing Models however, despite these benefits and drawbacks, project based Outsourcing and Managed Services are the outsource models that their preference is growing by the day as many telecom operators are increasingly identifying themselves with them.
2.5 THE MANAGED SERVICES MODEL
According to Wikipedia (http://en.wikipedia.org), a managed service is the practice of transferring day-to-day related management responsibility as a strategic method for
Pros Cons Preference
Staff
Augmentation
Ensure Skill availability
Tactical time-to-market gain
Some amount cost flexibility
Absence of metrics or processes
Uncertainty around vendor quality
Challenges of managing
“resources”
Decreasing
Out-Tasking Strategic “hard to do resource profiles can be obtained
Leverage unique skills in vendor
Possibility of managing spikes in work activities
Artificially dividing activities to facilitate out-tasking
Potentially sub-optimal manner of undertaking work
Not a true partnership as the vendor takes on limited risks
Decreasing
Project based Outsourcing
Collaborative model – where risks and rewards are shared
End to end vendor
accountability for projects
Increased avenues for vendors to apply their best practices
Very high client benefits
Client personnel need to get comfortable relinquishing day to day control
Calls for better understanding and appreciation of the offshore model
Demands better Biz-IT alignment while defining requirements
Increasing
Managed Services
Enables the client to have an integrated outsourcing solution
Obviates the hassles of having separate SLAs with different vendors
Typically justified only in a very complex outsourcing or high level offshoring
OLAs are easily arrived at; the multi vendor managed services is still a nascent model
The integrated outsourcing model could trend to have a high element of being a ‘black box’ with low transparency
Increasing
Page | 17 improved effective and efficient operations. The person or organization that owns or has direct oversight of the organization or system being managed is referred to as the client, or customer. The person or organization that accepts and provides the managed service is regarded as the service provider. This model is often adopted when the work can be clearly scoped out with clearly marked out deliverables. For the model to work effectively, the MSP should double as the equipment provider, giving them excellent understanding of the Telecoms operators systems. This will give the operators the confidence the need.
In recent time, many telecommunication companies are increasingly adopting the managed services model not only because it enables them focus on their identified core competence, make them more efficient, competitive, provide better network quality, and relives them of operational and capital costs (OPEX and CAPEX) but also because it provides an integrated outsourcing solution with a broader scope and multi-year SLA- based strategic relationship between the telecoms operators and the managed service provider. It also entrust the service provider with complete business accountability for the outcomes of the business.
As one of the fastest growing sectors in the telecommunications industry, Managed services sector is leading the sector with high margins. (Ray M., 2009). The choice of Managed Services, as the preferred model, is on the increase largely due to the inherent benefits associated with it.
2.6 CHOOSING A MANAGED SERVICES PROVIDER
In choosing a managed service provider, an organization should seek an outsourcing business model that can deliver a solution that befits the organization’s requirements and surroundings knowing that right service provider can be of enormous benefit. John (2008) argues that the following elements should be considered when appraising a possible service provider:
a. People and Experience – The expertise of your potential managed service provider’s partner’s staff should be backed by years of excellent solution experience. The technical staff should be qualified staff with broad experienced in different vendors systems and have an extensive track record of designing, operation, maintenance, and building service provider networks quickly and efficiently.
b. Knowledge Assets – Your managed services provider should have research and development capabilities. They should be a provider that is always abreast with the recent technologies, business modeling and analysis tools and be ready to adopt them.
Page | 18 c. Proven Methodology – The managed services provider should have established
outsourcing methodology and governance models, and use best in class tools, processes and metrics. Progress and process implementation should be measurable. (John R. 2008, p. 5-6)
2.7 Outsourcing Network Management
In recent times, Network Services and their management have been experiencing growing prevalence in the region of outsourcing. As both large and small companies continue to outsource their IT services, outsourcing network management has generated deep feelings and emotions raising many questions among staff and management in the telecommunications industry. The significance of service level agreements (SLA) and the role it has to play in vendor selection and network management is very crucial to outsourcing network management. Network Management SLA will be discussed later in this chapter.
Outsourcing to managed services is like establishing a relationship with other business concern and does not imply handing over all operations activities to the managed services provider (MSP) or vendor. The company still retains some key activities that help manage the relationship between the vendors, monitors the performance of the vendor and also retains a number of staff for network design and strategic network planning.
2.7.1 Factors to Consider before Outsourcing Network Services
Attitudes towards network operations are similar to those of personal health. In both cases, the signals that there is a need for outside help are often ignored until some serious event forces a change in attitude (Bauer B. 2004). With network operations, managers have to consider several factors before deciding to commit to network support by vendors. In this section we highlight the indicators that are believed to help network managers in their decision towards outsourcing and putting into consideration the environment, technological innovations.
Rising IT expenses – this arise when Networks grows organically instead of methodically. This is a situation when growth is compelled by the environment and not by any managed strategic plan.
Increasing network instability – instability arising from trivial complaints are signs of troublesome underlying problems. These complaints are often ignored and as they grow, they accumulate to become a serious source of instability in a company, hence should not be treated lightly.
Page | 19 Security overwhelming business operations - When some much time and energies are devoted by local IT personnel's to security, normal operations will be short-changed. And when this continues into unchecked it becomes institutionalized affecting other functions in the company.
New regulatory compliance requirements – In the bid to decode new government regulations the running of a well maintained network is neglected. To meet these new regulatory compliance requirements the company network tasks suffers.
Reorganization – Reorganizations initiated from within an organization can alter the entire blend of network support activities and affect network operation even though they may not be immediately apparent. Changes initiated from outside the organization can put tremendous demands on network operations.
2.7.2 Benefits of Network Outsourcing to Managed Services
In a rapidly developing market like the telecom industry, outsourcing network operations to managed services providers can be a source of immense advantage over competitors in like business. Outsourcing network operations enables company to concentrate on their core competency thus enhancing their market penetration and staff to be put to other use.
One other strength of outsourcing is that there is a tremendous cost savings accruing from not having to build a local Network Operations Centre (NOC). On service delivery, outsourcing network operations has greatly improved network performance. This improvement in outsourcing network operations has lead to improve customer retention, reduce network downtime and service degradation. Other considerations for embarking on network operations outsourcing include avoiding investments on equipments that short end of life, ease of being up-to-date with new technologies, reduction in costs associated with network maintenance, faster responses to change in market conditions, and faster response to complex to network issues in the most efficient manner.
2.7.3 Drawbacks of Network Outsourcing to Managed Services
While acknowledging the immense benefits that Managed services and other outsourcing models present, it is worth noting that there are drawbacks associated with their adoption As the network expands it is important for management to evaluate the network support needs. Many observed that projected costs savings and network key performance indicators (KPI) are usually exaggerated by MSPs and that they are confined to a fixed contract. This has led to companies setting up contract management teams within the organization to supervise the agreement, make sure that processes are strictly adhered to and run smoothly and to prevent errors from occurring. This measure has led to increased costs instead of costs savings. Outsourcing sometimes negatively influences staff
Page | 20 performance. This negative influence can reduce the control over strategic network services, leading to restricted effort to the overall organization’s objectives. Under this circumstances outsourcing to managed services is not advised. One should be wary of the short term gains as it can become long-term liabilities that can greatly reduces the zeal of remaining staff, increase turnover of talented and skilled employees, create impossible expectations between the company and the outsourcing provider, locked in a fixed and complex contract agreements, and the danger of the network takeover by the MSP.
2.8 Service Level Agreement (SLA)
A Service Level Agreement (SLA) is an official document included in master contract that defines the performance parameters known as key performance indicators (KPI) for an outsourcing agreement. The parameters includes detail description of services required, data transfer rate, expected performance level, network availability, network uptime, systems repair and network restoration. The use of SLA’s has grown in recent times and has led to the development of performance measurement and reporting tools required by stakeholders to monitor network performance and make sure that the network remains in the agreed threshold as specified in the SLA. The SLA is vital in setting up good relationship with the outsourcer. And to prepare a good SLA, a satisfactory service level specification of the business processes has to be established and responsibilities entrusted to appropriate providers capable of achieving that level.
In order to develop effective SLA, the following critical issues has to be considered:
The SLA should be carefully crafted to meet realistic targets with appropriate rewards and penalties for substandard and satisfactory level of performance respectively, request for continuous improvement on current standards, modeled to meet service requirements of the business, clearly state terms and monitoring processes, protect important and confidential information and endure that cost of items and services are reasonably priced and relevant to the business. To develop and maintain good managed service contract and improve upon the SLA, management should consult well known and reputable vendors that has previous experience and with proven track records.
2.8.1 The Composition of an SLA
The contents of an effective Service Level Agreement (SLA) should include but not confined to the following: Lists of Terms and Services with responsibility matrices, Measurable Key Performance Indicators (KPI’s) for the Service levels like quality, availability, capacity, reliability, and so on, Service levels measuring systems that are
Page | 21 accurate, cost effective, can measure in real time with well defined measuring periods and can analyze historic data, and Clear reporting process conducted in a periodic basis.
To take care of agreement breaches resulting from outsourcers not meeting performance specifications, there is a provision for Termination of Service agreement where the minimum service level agreement is set which allows for the termination of the contract.
This can result from single or multiple disruptions to network services. This process allows for the application of the proper termination method when providers fail to meet the minimum service level requirements.
SLA plays very important roles in guiding outsourcing vendors to be abreast with the company’s business requirements enabling them to perform their duties and allow the company to track their performance. SLA enables both parties to legally establish each party’s obligation out of the outsourcing contract. “The only way to ensure a comfort level for us is to set required service level specifications and then regularly measure the provider’s performance to determine whether it has achieved those levels” (GOOLSBY, 2001). Outsourcing as any other business agreement requires a well prepared, carefully analyzed and documented details for each individual points to eliminate risk to the buyer and in the end, to achieve win-win relationship between both parties (GOOLSBY, 2001).
2.8.2 SLA’s Limitations Considerations
Some many issues can crop up during implementation process as a result of the immense energy exerted during the SLA preparation without paying much attention on how it will be put to use or their practical implemented. There is the danger of the SLA having different interpretations over time as stakeholders strive to understand it. This will definitely undermine the aims and objectives of preparing the document. And no matter how meticulous the preparation process was, there is always the possibility that something unexpected may crop-up that might compromise the outsourcing validity.
Monitoring may appear as the sure way to know if the agreement is adhered to, however the costs implications associated with undertaking this SLA implementation monitoring process in detail is rather huge and will require a lot of money. For these reasons, it is very important that a viable Managed service provider is contracted regardless of the initial cost instead of the series of costs incurred during the duration of the contract in order to make sure providers comply with the SLA and do a proper job.
Page | 22 CHAPTER THREE
3 RESEARCH METHODOLOGY
3.1 OVERVIEW
This chapter describes the methods employed in carrying out this research work that look at the benefits and drawbacks of the Managed Services Model in Nigeria. In order to accomplish this research objective, primary and secondary sources of information were employed in gathering qualitative and quantitative data needed for the study, using, interviews, questionnaire survey, and relevant documentations. This chapter looks at these qualitative and quantitative sources of information with a discussion on their strengths and weaknesses, the research ethics employed in carrying out the research work, and how the actual information gathering processes for the research was carried out using interviews and questionnaire survey as the major instruments for the data collection. Finally, this chapter looks at the method employed in analyzing the data collected and end with the limitation to the research work.
3.2 Quantitative and Qualitative Data collection Methods
There are two basic kinds of data collection method used for data or evidence gathering, they are the quantitative and the qualitative data collection methods. Quantitative data collection methods is the numerical or statistical approaches to data collection, while the qualitative data collection method, on the other hand, are descriptive in outcome and, in many ways, more complex as they often involve understanding and modeling social interactions. This is done largely through interviews and observation. When combined with the quantitative methods, qualitative research can assist us to realize a good understanding of the composition of a given problem and the significances of quantitative data.
3.2.1 Quantitative Data Collection Method
Quantitative data collection method involves the use of numbers to assess information. In order words, it involves counting and measuring of events and performing the statistical analysis of a body of numerical data and the measurement of relationships between variables. This information can be measured by statistical means and provide researchers the chance for in-depth data analysis to seek greater meaning. Quantitative data being is numeric in nature, can be computer generated, but can also be captured from questionnaires, polls, surveys, interviews and documents etc. In telecoms research analysis, data is captured from metrics measurements, numerical simulation, software logging, quality control readings and software or hardware test beds and so on.
Page | 23 Quantitative approaches attempt to make generalizations. Hence, large amounts of data are required to justify generalization as against using small sample data which could introduce bias leading to generalizations that are unsatisfactory and outside the context that the data was gathered. The main concerns of the quantitative approaches are that measurement is reliable, reasonable, and generalizable in its clear prediction of cause and effect (Cassell & Symon, 1994). With this approaches, a researcher is usually isolated from the study producing a research work that is context free. This approach consists primarily of deductive reasoning, it those not favour elaborate explanation and yields a statement of statistical probability. The quantitative approach is focused more on the detailed description of a phenomenon and produces a generalization of the collected information with provisional synthesized interpretations.
The quantitative approach is an important instrument that aids the researcher to forestall bias in the information gathering processes. It is also very invaluable especially when a study needs to evaluate the cause and effect relationships apparent between pre-selected and discrete variables and help to avoid subjectivity during the information gathering processes. In addition, quantitative method enables lengthwise evaluations of subsequent performance of the respondents. Fryer (1991) maintained that qualitative researchers aim to decode, describe, analyze and interpret accurately the meaning of a certain phenomena happening in their customary social contexts. The whole essence of using the interpretative paradigm by researchers is on the investigation of authenticity, complexity, contextualization, and mutual subjectivity of the researcher and the respondent as well as the reduction of illusion.
The quantitative approach to data gathering have notable weaknesses that affects the accuracy of the collected data, some of which are the failure to furnish researchers with the context of the situation where the studied phenomenon occurs, the lack of control of the environment where respondents provide the answers to the questions in the survey, little results in original research proposal due to closed type questions and the structured format, and the limited encouragement to the evolving and continuous investigation of a research phenomenon (Alexei V. 2010)
3.2.2 Qualitative Data Collection Method
The use of interview is a qualitative approach that generates verbal information rather than numerical values. Instead of using statistical analysis, the qualitative approach utilizes content or holistic analysis; to explain and comprehend the research findings, inductive and not deductive reasoning is used (Polgar & Thomas, 1995). Additionally, qualitative data collection approaches seek to understand a research problem from the views and experience of the people concerned. Qualitative approaches are especially
Page | 24 effective in obtaining culturally specific data about the values, opinions, behaviors, and social contexts of particular populations.
Using qualitative data collection method is beneficial as research ideas/thoughts are more open to changes and refine as one advance in the study; this entails that qualitative data collecting tools are highly flexible. With this method, manipulations of any sort in the research work are unnecessary and instead of adopting numerous research checks as in experimental approaches, the qualitative data collecting method only concerns itself on comprehending how things exists naturally. Apart from these benefits, some previous researchers trust that qualitative data are particularly attractive. They believed that using qualitative data-collecting tools allows for reasonable and detailed descriptions and explanations as well as unanticipated findings for new research findings.
The renowned strengths of the qualitative methods is that they elicit and depicts a more realistic or natural feeling of the research environment that is difficult to get from statistical analysis and numerical data using the quantitative methods and aside allowing for flexibility in directing data gathering, research analysis and interpretation of collated data, the qualitative method of information sourcing allows the demonstration of the process being researched upon to be seen in a more holistic manner. Also, the qualitative approach offers information on the human side of an issue that includes opinions, emotions, and relationships, beliefs and behaviors. It is also effective in discovering nonphysical factors, like ethnicity, religion, gender, status, social and cultural norms, whose part in the research subject may not be evident.
Despite the above strengths, the qualitative approaches still have their weaknesses. The qualitative approaches have the tendency of departing from the original objectives of the research in response to the changing nature of the context (Cassell & Symon, 1994).
There is the likelihood of having different conclusion from the same research by different researchers. Other weakness of the approach includes the inability to clearly explaining the differences in the quality and quantity of data collected from different respondents, the high level of expertise required by researchers to extract the relevant information from respondents, and the application of different probing techniques by different researcher and the tendency by respondents to tell different stories to different researchers poses consistency reliability issue to the qualitative approach.
3.3 Research Ethics
The importance of Research Ethics in modern research processes cannot be over- emphasized, especially with regard to methods used in data sourcing and gathering. This is because human interaction is often required in data sourcing and gathering.
